Wikinvest Wire

Dr. Doom and Deputy Doom at

Wednesday, March 10, 2010

CNBC has two stories out this morning that should scare the bejeebers out of investors, but, the ongoing rally seems indefatigable as of late. Dr. Doom notes in this report that the odds of a double-dip recession were 20 percent before the recent spate of negative economic data.

Poor economic data in the US coupled with Europe's debt crisis are contributing to an increase of the risk of the US economy going through a double-dip recession, Nouriel Roubini, who predicted the 2007 financial crisis, wrote in a research paper.
The Roubini Global Economics benchmark scenario puts the risk of a double dip at 20 percent, while a slow, protracted, U-shaped recovery is given the highest probability of 60 percent.

But since the end of February new macroeconomic data from the US have come out and "they have been almost uniformly poor, if not outright awful," Roubini wrote.

Consumer confidence has "tanked", new home sales are "collapsing," existing home sales are also falling sharply, as is construction activity, while initial jobless claims remain "stubbornly high" above the 400,000 mark, he said.
Roubini was unimpressed by the 5.9 percent growth rate for the economy in the fourth quarter as it was largely an inventory rebuilding surge and it came at a time when the maximum impact of the government stimulus was being felt.

A Roubini "protege" (now there's a word that you don't hear too much anymore...) apparently known as "Deputy Doom" also showed up on this morning in this story about another topic that you don't hear too much about anymore - inflation.
'It's Going to Be Inflation Everywhere:' Deputy Doom
The global economy is entering a next "supercycle" phase that will generate inflation necessary for recovery, a strategist and protege of noted economist Nouriel Roubini told CNBC.

Arun Motianey, director of fixed income strategy at Roubini's RBG Capital, said the supercycles feature periods of commodity booms followed by busts, and the US economy is on the verge of an inflationary period that will generate a sharp rise in prices.

"We're heading into a world of inflation because we are highly indebted and we are indebted here in the US economy in the household sector and in the financial sector," said Motianey, author of the book "SuperCycles."
"It's going to be inflation everywhere and it's going to happen really through the weakness of the US dollar," he said. "Then inflation in those other parts of the world that are expecting appreciating currencies, they're going to inflate as well because that's the way you ultimately correct this."
You also don't hear too much about "supercycles" these days...

The idea that we were in the middle of a "commodities supercycle" a few years back and that it has been on pause - not over - will likely gain traction as we move further and further away from the cataclysmic events of 2008-2009.

Of course, economists seem to be doing their part to help in that regard and a subject that you do hear a lot of talk about these days is their sudden "embrace" of higher inflation (for the sake of recovery, that is), as seen in this piece at voxeu - A 4% inflation target?

At some point in the years ahead, economists will probably wish inflation was only 4 percent.

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Anonymous said...


What will be the impact on housing, if inflation is high? Will it correct even further with potentially rising interest rate, or it will appericiate - trying to match inflation?

Tim said...

That's a good question. I suppose it depends on when and how high interest rates rise. Far and fast and housing doesn't stand a chance but, a slower approach would probably push housing prices higher.

Anonymous said...

Thanks Tim.

So I guess, Fed will eat up the difference if interest rate will rise far and fast. They wouldn't stand by and let housing go down too far. Potentially, you can buy a property with artifically low (thanks to Fed) rate now, and watch it go high, if inflation shoots up - again thanks to Fed.

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